VALUE BASED PORTFOLIO STRATEGY

Portfolio management is central to almost every Chief Executive’s job description.  Where are our best growth platforms, and what does that mean for where we want to channel re-investment of our cash going forward?  Where can we create value via further industry consolidation?  What new ‘legs’ should we add to our existing portfolio, and what is the underlying rationale for those moves?  Which businesses in our portfolio are potentially worth more to someone else?  And what does all of this mean for the optimal approach in terms of our balance sheet and the return of cash to shareholders and debtholders over time?  With the aforementioned challenge related to delivering organic growth, these issues tend to crowd out others in the Board room and with the broader investor community.

 

A number of CEOs look to TRC to support them in tackling these high priority issues and building alignment both with their Board and their senior management team.  This typically starts with an understanding of the nature of the ‘value gap’ – what is required to deliver top tier shareholder returns vs. a defined peer set, what do existing plans and agendas deliver under current course and speed, and what does that gap mean in terms of the nature of ‘stretch’ required in the scope of portfolio alternatives.  Alternatives are defined to reflect differences in target markets/platforms, mix of organic vs. inorganic investment, balance of restructuring vs. growth, and level of reinvestment vs. cash returned to shareholders.  Future value creation potential, the relative investment requirements (and risk), and the feasibility to execute become the measuring sticks for the agreed alternatives and ultimately inform a choice regarding the roadmap (and what that means for M&A targets, etc.) going forward. 

3 Year Valuation ($M)

Enterprise Value Creation Associated with Alternative Strategies and Capital Allocation Choices (Illustration)

Value

Goal

Current

Valuation

Baseline

Selective Rationalization

Portfolio Mix Optimization

Organic Growth & New Platforms

Aggressive Organic

Growth

Investment Platforms/

Strategy

Re-Invest to Support Business As Is

More Aggressively Streamline and Rationalize Portfolio

Enrich the Mix of Market Participation Across Portfolio

Aggressively Invest Behind Share Gain Strategies in Target Markets

Aggressively Invest Behind Existing and New Markets

Probability of Success

  High  

  Med-High  

  Medium  

  Med-Low  

  High  

$60M

3 Year EBITDA

 $40M  

$50M  

$70M 

$80M  

Incremental Invested Capital

 $10M  

$20M  

$50M

$100M 

$400M  

 5X  

7X

6X

Multiple

8X

5X

  • Clearly defined value creation goal that works back from what it takes to deliver top tier performance vs. a defined peer set
     

  • Alignment behind the nature of the performance ‘gap’ given a grounded understanding of what the company is likely to deliver under current course and speed (and with existing agendas)
     

  • A set of well-defined portfolio alternatives that reflect differing choices regarding both where and how (e.g., organic vs. acquisition) to deploy future capital
     

  • An agreed profile of those alternatives in terms of both value creation potential, relative risk and feasibility

     

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